Cyclical unemployment

• Unemployment which is related to the cyclical trends in the industry or the business cycle is called the cyclical unemployment.
• In a capitalist economy people who invest and those who save are two different individuals. This creates disequilibrium between investor and saver.
• Due to this difference sometime the economy faces prosperity and at times depression.
• During prosperity there is more investment, production, income and employment in economy. On the other hand when economy faces depression then there is reduction in the demand of goods and services.
• Due to reduction in effective demand industries have to reduce production or shut down the production and many labourers are removed from work. Here depression is the reason for unemployment.
• Owing to such cyclic nature this unemployment is called cyclical or depressive unemployment or trade cycle unemployment.
• America experienced severe depression during 1929-30 and its effect was faced by many countries of the world. For this reason this depression was known as The Great Depression.
• Even today, sometimes developed countries like America and England face this type of unemployment.
• Cyclical unemployment is quite frequent in India due to India’s capitalist market mechanism. Indian diamond industry is one such example.

Solution:

• In order to solve the problem of cyclical unemployment, the state should invest in productive and developmental activities and provide employment to maximum people.
• Government should try to increase income level of people. With increase in income, effective demand will increase which in turn will increase production. When production will increase it will increase employment. This will then solve the problem of cyclical unemployment.